Publication Type
Journal Article
Version
submittedVersion
Publication Date
10-2004
Abstract
This paper documents how prospect theory can be used to explain stock returns and analysts' forecast behavior. Positive earnings surprises are associated with increases in abnormal returns but negative earnings surprises have only a limited negative impact on returns. We find that analysts display asymmetric behavior towards positive and negative earnings growth. Analysts' forecasts are found to be accurate during periods of positive earnings growth, but overly optimistic during periods of negative earnings growth. Our findings have implications for the structuring of investment products, as well as the role of market timing in their introduction.
Keywords
Behavioral finance, prospect theory, analyst forecasts, earnings growth, earnings surprise
Discipline
Business | Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Multinational Financial Management
Volume
14
Issue
4-5
First Page
425
Last Page
422
ISSN
1042-444X
Identifier
10.1016/j.mulfin.2004.03.005
Publisher
Elsevier
Citation
DING, David K.; Charoenwong, Charlie; and Seetoh, Raymond.
Prospect theory, analyst forecast, and stock returns. (2004). Journal of Multinational Financial Management. 14, (4-5), 425-422.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1158
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.mulfin.2004.03.005